Autumn 2015
Charity and
Social Enterprise
Update
In brief
Contents
Essential trustee guidance3
Get Legal5
Fundraising update6
Digital revolution8
Legislation watch9
Domain names10
Procurement12
Prevent duty13
B Corps14
Divest Invest16
Legacies17
Tax19
Scotland20
Roundup22
BWB has moved!
Our new riverside offices are at:
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London
EC4R 1BE
Phone numbers remain the same. For
directions to our new location, please
refer to our website at www.bwbllp.com/
how-to-find-us-10-queen-street-place
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In this wide-ranging update, we announce the launch of our
new BWB Get Legal service – an online resource for purchasing
affordable, bespoke legal documents, introduced by Thea Longley
and Lucinda Ellen (page 5).
Fundraising practices have been the subject of intense scrutiny in
recent months. Christine Rigby summarises the current situation
(page 6); while Leticia Jennings examines the complexities for
charities when left a gift of shares, (page 17).
The digital world is increasingly integral to the successful running
of charities. Onboard’s Tesse Akpeki argues that boards should do
more to exploit the opportunities of new technology (page 8); and
Catharina Waller discusses some of the issues arising for charities
from the release of new domain names, such as .ngo .fund and
.foundation (page 10).
We report on the Charity Commission’s new guide on the duties
of trustees – a must-read, says Leona Roche (page 3) – and Pippa
Garland and Chinonso Denwigwe look at the implications of recent
legislation on charities and social enterprises (page 9).
In good news for the sector, a recent case provides encouragement
for service providers looking to challenge a procurement decision,
according to Selman Ansari and Claire Whittle (page 12).
In less good news, the introduction of the Prevent duty, which
requires a wide range of organisations to tackle radicalisation, is
likely to require extensive changes to policies and procedures,
explains Ayden Peach (page 13); while in his regular tax update,
Bill Lewis discusses changes to HMRC’s approach to charity
mailings that may incur significant VAT charges (page 19).
Luke Fletcher and Louise Harman discuss the B Corp movement
which introduces new standards of social and environmental
performance for companies; and Martin Bunch explains why BWB
has become the first UK law firm to be certified as a B Corp (page 14).
Sarah Butler-Sloss, chair of BWB client the Ashden Trust,
introduces the Divest Invest movement (page 16).
And finally, John Hodge and Alan Gilfillan of Balfour+Manson look
at the situation in Scotland (page 20); and we provide the regular
round-up of news from the Charity Commission and Charity
Tribunal (page 22).
Features
The Essential Trustee CC3: what you need
to know, what you need to do
After a significant period of consultation with the sector, the Charity Commission
has launched its updated guide for trustees.
Leona Roche comments on the new
publication
Leona Roche
Senior Associate
and Joint Head of
Faith-Based
Organisations group
T: 020 7551 7835
[email protected]
Leona enjoys advising
clients on tricky
governance matters,
charity law and trustee
duties. She is joint head
of BWB’s Faith-Based
Organisations group,
a cross-departmental
team of solicitors with a
personal and professional
interest in working with
faith-based charities.
www.bwbllp.com/sectors/
faith-based-organisations/
It’s finally here – revamped and completely rewritten
– the Charity Commission’s new Essential Trustee
guide. A key piece of guidance for charity trustees,
it seeks to explain the fundamental responsibilities
and duties undertaken by trustees. The commission
wanted to make the new guide easier to understand
and apply – its language is certainly clear and direct.
The commission is encouraging all trustees (new and
experienced) and those thinking of becoming a trustee
to read the guide.
As well as explaining the main trustee duties, the new
guide also sets out what the commission considers
to be good practice for trustees seeking to fulfil those
duties. The commission makes it very clear that it
expects trustees to follow its recommended good
practice, albeit applying it appropriately to their
charity’s particular circumstances.
General tone
The commission invited the views of the sector
when it published a draft of the new guide for
consultation in November 2014. Many trustees
responded favourably and liked the new, direct
tone of the draft. However, a significant minority,
including BWB and a number of umbrella bodies
in the sector, had concerns that the overall tone
of the guide had changed and become more
prescriptive and regulatory and, as a result, less
permissive and encouraging. We felt it was important
for the guide to be positive in tone and to promote
volunteering as a charity trustee as a rewarding and
exciting opportunity.
The commission has listened to this feedback and
the new guide retains the positive tone of the original
guidance, acknowledging the very important role
that trustees play. It also reassures trustees that while
they have responsibilities, they are not expected to
be perfect – they are expected to do their best to
comply with their duties.
The key trustee duties
The new guide lists six key duties that are essential
for trustees to properly carry out their role and
considers each of them in some detail:
1. ensure your charity is carrying out its purposes
for the public benefit;
2. comply with your charity’s governing document
and the law;
3. act in your charity’s best interests;
4. manage your charity’s resources responsibly;
5. act with reasonable care and skill; and
6. ensure your charity is accountable.
“We felt it was important for the guide
to be positive in tone and to promote
volunteering as a charity trustee as a
rewarding and exciting opportunity”
The commission considers these six duties to be
fundamental because, in its experience, there has
usually been failure in at least one of these duties
when serious concerns arise about a charity and its
governance. For example, the guide reminds trustees
that they must ensure that their charity complies
with its governing document, as well as charity law
requirements and other applicable laws. This may
seem obvious, but all too often trustees fail to comply
with their governing document and are not familiar
with what it requires. The commission recommends
that it is good practice for all trustees to have an
up-to-date copy of their governing document and to
read it regularly.
In this way, the new guide seeks to highlight the
common pitfalls for trustees and give practical
examples of how trustees can comply with good
governance practice. The guide also contains
numerous signposts to more detailed guidance
for those trustees who want to learn more or need
a more in-depth understanding.
‘Should’ and ‘must’ requirements
As before, the new guide uses the terms ‘must’ and
‘should’ – ‘must’ indicating a legal or regulatory
requirement that trustees must comply with, and
‘should’ indicating good practice requirements that
Charity and Social Enterprise Update | Autumn 2015 3
Features
accepts that it is for trustees themselves to consider
and decide how best to apply good practice to their
charity’s particular circumstances.
Apply or explain
Nevertheless, the new guide makes it clear that the
commission expects trustees to follow its ‘should’
recommendations of good practice – they are not
an optional extra! If the commission is looking into
concerns raised about a particular charity, it will
not be enough for its trustees to say that they have
complied with the minimum legal requirements. The
commission will want to know if they have followed
and applied their recommended good practice also
and, if not, why not…
the commission expects trustees to follow and apply.
During the consultation, we expressed our concerns
about the proposed redefinition of ‘should’ in the
consultation draft and what it could mean if trustees
failed to follow the ‘should’ recommendations.
In short, trustees were being warned they may
be in breach of their legal duties and be guilty of
misconduct or mismanagement if they did not follow
the ‘should’ requirements without good reason.
Although the commission acknowledged that trustees’
legal responsibilities had not changed, we remained
concerned that, in practice, ‘should’ requirements
would be treated as obligatory. The risk was that,
in time, good practice would be elevated to the
status of a legal requirement.
The commission was again receptive to this feedback
and this is reflected in the final definition of ‘should’ in
the new guide, which has been qualified somewhat.
The new guide now at least acknowledges that
charities vary in size and activities, and what amounts
to good practice will therefore differ from charity to
charity. There is no one-size-fits-all, and the guide
4 Charity and Social Enterprise Update | Autumn 2015
Where there has been a potential breach of trust or
duty, the guide states that the commission: ‘may take
account of evidence that trustees have exposed the
charity, its assets or beneficiaries to harm or undue risk
by not following good practice’ (ie the commission’s
‘should’ requirements). Where trustees choose not
to follow the good practice recommended by the
commission, it is advisable for them to ensure that they
can explain and justify their reasons for not doing so.
Trustee must-reads
Whether you are a new trustee or a very
experienced trustee, the new Essential Trustee
is a must-read. Not only will it be a good
introduction to – or reminder of – the key duties
and responsibilities of being a trustee, it will
also give you a clear indication of what the
commission expects of you and the common
errors to watch out for. Download the guidance at
https://www.gov.uk/government/uploads/system/
uploads/attachment_data/file/443838/CC3.pdf
I would also strongly recommend reading
BWB’s own free guide, Duties of Charity Trustees,
which presents a concise and comprehensive
introduction to trusteeship and is one of our most
popular publications. It can be downloaded at:
www.bwbllp.com/file/bwb-guide-to-duties-ofcharity-trustees-pdf-1
New BWB service
BWB Get Legal
BWB Get Legal is a new resource for purchasing affordable, bespoke legal documents.
Thea Longley and Lucinda Ellen
introduce the new service
Thea Longley
Partner and Head of
Membership Organisations
T: 020 7551 7796
[email protected]
Thea works with a broad
range of not-for-profit
organisations. She advises
charities on all aspects
of their work including
governance, contracts,
grant agreements and
fundraising.
Lucinda Ellen
Paralegal
T: 020 7551 7608
[email protected]
Lucinda supports the
Charity and Social
Enterprise team with all
aspects of their work. In
particular Lucinda has
experience in assisting
with the formation of
new charities, completing
company incorporations
and providing general
company law advice.
What is BWB Get Legal?
You may be familiar with Get Legal as a collaborative
website between BWB and NCVO, offering helpful
know-how for third sector organisations. BWB Get
Legal is now to be re-launched to provide a unique
new service offering a range of customisable legal
documents, designed specifically for charities and
social enterprises.
The website offers a range of top-quality, affordable
legal documents and guides, available to download
and tailor to your own specifications. Every document
has been carefully drafted by one of BWB’s expert
solicitors.
BWB Get Legal will also continue to provide free
information, advice and vital resources to help guide
you through the legal issues relating to setting up and
running a charity or social enterprise.
Who is it for?
BWB Get Legal has been designed to provide
charities, voluntary organisations and social
enterprises with a cost-effective alternative to
engaging full legal services for straightforward
documents. The easy-to-access tools and optimally
priced documents will help busy third sector leaders
make light work of what can be complex, costly and
time-consuming governance issues.
key feature is the interactive decision tool, which will
help organisations to find the best legal structure,
while providing useful information and expert support
for the early stages. Regular blogs, legal updates and
expert perspectives will also help charities and social
enterprises to get to grips with key legal issues.
The website is due to launch at the end of September
and will become the leading resource for online legal
documents for the charity and social enterprise sector.
How does it work?
BWB Get Legal offers a wide range of legal documents
at a fixed fee, including written resolutions, a checklist
for general meetings and employment contracts. Once
a document is purchased, you will be guided through
a step-by-step process to adapt and customise the
document to your organisation’s specific needs. There
are instructions and guidance to make the process as
clear as possible.
Find out more
If you are interested in finding out more about
BWB Get Legal please contact getlegal@bwbllp.
com or visit the website, live from 23 September
at www.getlegal.org. uk
In addition to the legal documents on offer, the
website also features a wealth of resources for new
and established charities and social enterprises. A
Charity and Social Enterprise Update | Autumn 2015 5
Features
Fundraising – seismic shifts in the landscape
The past few months have seen intense debate on the regulation of fundraising.
Christine Rigby highlights the key
developments over the summer
Christine Rigby
Senior Consultant
T: 020 7551 7712
[email protected]
With over 15 years’
experience, Christine
combines updating
clients on new legal
developments with
providing specialist
advice on constitutional
and governance issues,
fundraising and trading.
Christine Rigby is a
member of the IOF
Standards Committee.
BWB’s Lawrence
Simanowitz sits on the
Board of the Fundraising
Standards Board.
The suicide of 92-year-old Olive Cooke in Bristol in
May of this year triggered an intense media focus
on fundraising practices. This, in turn, has led to
reaction from government and sector bodies, with a
potentially confusing plethora of reviews of fundraising
regulation and proposed changes to legislation and
self-regulation codes.
This article outlines the most significant developments
to date and explains various parallel processes which
are still ongoing.
Parliamentary developments
Reaction from Parliament has been swift, with the
prime minister personally engaging at some stages.
This has led to two separate government initiatives
– a wholesale review of self regulation of fundraising
and fundraising standards, and also proposals for
some detailed changes to the law.
The review is being carried out by Sir Stuart
Etherington, chief executive of NCVO, together with
three other panel members. Over the summer, eight
specific consultation questions were issued, and now
we await the panel’s final report, due on 21 September.
Without waiting for the result of review, the
government has already proposed two key changes to
the law regulating charities and fundraisers:
n Charity
agreements with ‘professional fundraisers’
and ‘commercial participators’ will have to include
new detail about the methods of fundraising to
be used – see Box 1. Failure to do so will mean,
for example, that a professional fundraiser would
not be entitled to be paid money due under the
agreement (unless a court agreed it could be paid).
n Charities
with income over £1m will have to
include in their annual report the additional
information set out in Box 2.
These changes are set out in the Charities (Protection
and Social Investment) Bill which is currently
progressing through Parliament: see the article on
page 9 of this update for more details.
6 Charity and Social Enterprise Update | Autumn 2015
There is, however, a further Parliamentary review
to mention. In July, the House of Commons Public
Administration and Constitutional Affairs Committee
announced that it would be carrying out its own
inquiry into fundraising in the charitable sector.
This inquiry is focusing on four key areas:
n the
extent and nature of practices adopted by call
centres raising funds for charities and the impact
on members of the public, particularly vulnerable
people;
n the
proposed legislative changes (see above);
n how
charities came to adopt these methods, and
how they maintained proper governance over what
was being done on their behalf;
n the
leadership of charities and how their values
are reflected in their actions and activities.
The committee has been seeking written evidence
and submissions on the issues from charities – an
evidence session is planned for early September.
Sector reaction
The sector has not been inactive either. Since May,
the Institute of Fundraising (IOF) has announced
a number of changes to the Code of Fundraising
Practice, which underpins the current self-regulatory
regime. The changes include:
n adding
a new section to the Code to clarify that
fundraisers must not knock on any door with a
sticker including the words ‘No Cold Calling’.
This change came into effect on 1 September.
The IOF has issued detailed supporting guidance
making clear which stickers are caught by the new
Code wording.
n amending
the telephone fundraising section of
the Code in relation to calls to numbers registered
with the Telephone Preference Service/Corporate
Telephone Preference (TPS/CTPS) Service. There has
been clarification of the Information Commissioner’s
Office’s (ICO) view on this issue, meaning charities
cannot necessarily assume they can call a ‘warm’
TPS registered donor. The IOF is continuing to seek
clarification from the ICO on this front but charities
should be clear that these Code changes are now in
force and have been since mid-August.
Features
There may be further changes to the Code in the
autumn when four task forces report to the IOF
Standards Committee (which is responsible for
setting the Code). The task forces are looking at: the
frequency and volume of approaches to individual
donors; making it easier for individuals to manage
their preferences on what fundraising communications
they receive from charities; what standards charities
should comply with in relation to the buying, sharing
and selling of data, and further standards specifically
related to telephone fundraising.
And finally, a sector development which predated
most of announcements mentioned above – back
in June, NCVO announced it was bringing together
a group of sector bodies to produce new guidance
on managing and governing fundraising i.e. not the
detail of fundraising standards but issues at a higher
management/governance level. This joint project is
still due to go ahead but has been postponed until
after the Charities Bill goes through the Commons.
Scotland
Mirroring developments in England and Wales, both
the Scottish Government and the Scottish Council for
Voluntary Organisations are reviewing fundraising in
Scotland. Although the Code of Fundraising Practice
applies in Scotland, the law regulating fundraising
is slightly different. Both reviews were due to report
back by the end of August 2015.
Conclusion
At the time of going to press, further changes to the
Code, and some change to the underlying law, seem
pretty likely. However everything is moving quite fast so
it is possible there will have been further developments
by the time you are reading this. The bigger issue
for government is whether to allow the current selfregulatory regime of fundraising to continue or whether
to step in and legislate. And the key challenge for
the sector is to demonstrate that self regulation of
fundraising does and can continue to work.
For the latest information please ask your usual
BWB contact or subscribe to our weekly BWB
Briefing which includes a section on fundraising
developments.
Box 1 – Summary of proposed additional
requirements for agreements between
professional fundraisers/commercial participators
(‘fundraisers’) and charities
a) Details of any voluntary scheme or standard of
fundraising that the fundraiser undertakes to be
bound by for the purposes of the agreement.
b) Details of how the fundraiser is to protect
vulnerable people and others from certain
behaviour in the context of the agreement,
namely: unreasonable intrusion on a person’s
privacy, unreasonably persistent approaches,
and placing undue pressure on a person to give.
c) Details of arrangements enabling the charity to
monitor compliance.
Box 2 – Summary of proposed new reporting
requirement for charities with income over
£1 million
The annual report must include a statement of:
a) the approach taken by the charity and those
acting on its behalf to fundraising activities,
including whether a professional fundraiser or
commercial participator was involved;
b) whether the charity or any person acting on
its behalf had undertaken to be bound by any
voluntary scheme or standard of fundraising,
and relevant details;
c) any failure to comply with such a scheme or
standard;
d) how the charity monitored fundraising activities
carried on by any person on its behalf;
e) the number of fundraising complaints received
by the charity or a person acting on its behalf;
f) what the charity has done to protect vulnerable
people and others from certain behaviour (see
Box 1) in the course of, or in connection with,
fundraising activities.
Charity and Social Enterprise Update | Autumn 2015 7
Features
The digital revolution – is your board on
top of the challenge?
Recent studies have shown that boards can do a great deal more to exploit
new technology.
Tesse Akpeki of Onboard argues
that this is an essential part of
governance today
Tesse Akpeki
Consultant
T: 020 7551 7702
[email protected]
Tesse is a consultant and
trainer specialising in
governance development.
Her focus is on enabling
harmonious professional
relationships, especially for
senior leaders and trustee
boards, and facilitating
change management
programmes.
www.on-board.org
Onboard brings together
leading third-sector
consultants with BWB’s
specialist charity lawyers
to offer governance
development, training and
support to charities and
social enterprises.
www.on-board.org/
Find out more
New technologies
and the board is
an area of focus
in Onboard’s new
report, Governing
with Intent, available
to download from
www.on-board.
org/wp-content/
uploads/2015/07/
Governing_with_
Intent.pdf
The opportunities afforded by new technologies are
vast, with the charity and voluntary sector making
the most of them. Onboard’s Wired to Govern survey
polled more than 150 respondents in the sector,
showing that 90% of board members and CEOs use
Facebook, 80% use LinkedIn and 60% Twitter.
Respondents told us that they use social media
to enhance communications, connections,
conversations, networking and building relationships.
They set up LinkedIn groups for board members
to communicate between board meetings. This
corresponds with evidence from our regular Wired
to Govern workshops of an increase in engagement
between board members, chairs, the chief executive,
staff, volunteers and other stakeholders. Chief
executives are blogging to service users and members.
LinkedIn, Facebook and Google groups are being used
for consultations. Chairs and trustees are including
their charitable roles in their LinkedIn and Twitter
profiles. Respondents shared stories about the charity,
made observations and gleaned feedback through
popular social media channels.
However, in both the private and voluntary sectors,
boards are lagging far behind executive staff in
embracing new technologies. The most recent FTICSA Boardroom Bellwether survey of FTSE 350
companies shows that in the private sector, social
media is not high on the boardroom agenda. More
than a third (34%) of respondents had not discussed
a social media policy at board level, while 49% had
discussed it between one and three times. Only 8%
had discussed social media more often. While these
results show more engagement from boards than in
previous surveys, it is still surprisingly low.
Our experience at Onboard is that charities are in a
similar position: charity boards are lagging far behind
their managers in their attitude to digital technology.
Board communications
Experience shows that charity boards can make
8 Charity and Social Enterprise Update | Autumn 2015
good use of use of technology to manage their
meetings and communications. Online portals – used
by charities such as Citizens Advice, BACP and
Samaritans – enable board members to more easily
access relevant information and feel more supported
and tuned in to their organisation. Tablets can
enable board members to access their board papers
instantly; and iPads have in-built apps to manage
meetings, create libraries and store board papers,
past and present. Embracing paper-free working
can significantly reduce time and cost. Copying and
mailing board papers is no longer necessary.
Wider issues
More fundamentally, it is crucial that charity board
members have a good understanding of social media
and digital technology if they are to be in a position
to manage their charities properly. With the myriad
of opportunities, threats abound. The risks offered
by the fast pace and often unmitigated flow of
conversations need to be managed. With the changes
in technology and to mitigate cyber threats, boards
need to be better at formulating policies and guidance
to guard against reputational and security risks and
maintaining an overview of their website.
The Charity Commission has high expectations of
the board in this area. A tweet sent by Oxfam in the
context of its campaigning work in 2014 prompted
a report from the Charity Commission welcoming
the trustees’ subsequent recognition of ‘the need to
review oversight of their social media work’. In July
2015 the Charity Commission reported on its inquiry
into Islamic Network, which focused on material on
the charity’s website. Although none of the current
trustees were trustees in 2004, when the articles at
issue were uploaded to the website, the commission
concluded that more should have been done by the
current trustees to monitor the charity’s website to
ensure its content was appropriate. It found that the
current trustees were too slow in implementing their
new policies designed to ensure extremism and hate
material is not promoted.
Changes in technology bring opportunities, but they
also bring risks. The board that embraces the digital
age will be able to manage both.
Features
Legislation watch – changes in the pipeline
New changes to charity and company law will affect the regulation of charities,
and social enterprises and charities established as companies.
Pippa Garland and
Chinonso Denwigwe report
Pippa Garland
Associate
T: 020 7551 7779
[email protected]
Pippa is the key contact
for matters regarding
Charities (Protection and
Social Investment) Bill.
Pippa has experience
of working with a wide
range of charities and
social enterprises on legal
and commercial issues,
including corporate
structures, governance
and fundraising.
Chinonso Denwigwe
Trainee Solicitor
T: 020 7551 7769
[email protected]
Chinonso is the key
contact for matters
regarding Small
Business, Enterprise and
Employment Act 2015.
Chinonso is a company
law specialist and is
particularly knowledgeable
on the workings of
Companies House and
the Charity Commission.
Charities (Protection and Social Investment) Bill
At the time of writing, the Charities Bill is progressing
through Parliament.
New powers for the Charity Commission
As explained in our spring and summer 2015 updates,
the original purpose of the legislation was to provide
stronger protection for charities in England and Wales
from individuals who are unfit to be charity trustees
and to equip the Charity Commission with new or
strengthened powers to tackle abuse of charity more
effectively and efficiently. The bulk of the legislation
therefore introduces new provisions regarding the
disqualification of charity trustees and the Charity
Commission’s regulatory powers.
Social investment
The Bill now also includes a new legal power
for charities to invest their funds in a way that
both provides a financial return and furthers the
charity’s aims. This implements a Law Commission
recommendation and is intended to end the legal
uncertainty over charities’ ability to make social
investments. BWB has been pushing for this statutory
power for some time and welcomes this addition,
which should make it easier for charities to make
a positive social impact with their investments.
Fundraising
During the Bill’s passage through the House of Lords,
the government put forward important amendments
designed to regulate fundraising. Christine Rigby’s
article on page 6 of this update gives more details
about the proposed changes.
administration and to increase transparency by
making it easier to see who owns, controls, and
makes decisions about how companies are run. The
new rules will apply to charities and social enterprises
that are established as companies, including CICs.
Our spring 2015 update – www.bwbllp.com/
knowledge/2015/03/30/charity-and-social-enterpriseupdate/ – outlined key changes being introduced by
the Act and the relevant implementation dates. Note,
however, that the ban on corporate directors, which
was due to be introduced in October 2015, has now
been postponed to October 2016.
People with significant control
The legislation introduces new requirements where
individuals or legal entities have ‘significant control’ of
a company. The company will need to keep a register
of ‘people with significant control’ (PSC register), and
forward relevant information to Companies House. At
the time of writing, the latest information on this new
requirement is as follows:
■following
the conclusion of a consultation period
in July, draft regulations on the PSC register are
being finalised by the government. We expect
to see these regulations in their final form along
with further statutory and general guidance on
the meaning of ‘significant influence’ – a key term
in the legislation – and compliance with PSC
requirements in the autumn;
■the
requirement to keep a PSC register is still
due to commence in April 2016;
■from
June 2016, the PSC register details will
need to be submitted to Companies House with
incorporation forms for new companies and
annually for existing companies;
■companies
The legislation is something of a moving feast: a
number of other amendments were proposed in the
Lords but not all of them survived the Lords’ debates.
However, more amendments are likely now that
Parliament has returned from the summer break.
The Small Business, Enterprise and
Employment Act 2015
should also expect further minor
changes to the PSC regime in the near future to
make the UK regime compatible with recently
introduced EU-wide transparency rules.
Additional contact
For matters regarding Social Investment – Luke
Fletcher ([email protected])
This legislation aims to simplify company
Charity and Social Enterprise Update | Autumn 2015 9
Features
Domain names for the voluntary sector
New domain names such as .ngo .fund and .foundation are now available,
and more are in the pipeline.
Catharina Waller outlines what
this means for charities and social
enterprises
Catharina Waller
Trade Mark and Patent
Attorney
T: 020 7551 7701
[email protected]
Catharina joined Bates
Wells Braithwaite in 2014
from an international
boutique intellectual
property law firm, where
she was co-head of the
London office. She is a
trade mark and patent
attorney with more than
eight years’ experience
in assisting clients with
registration and protection
of their intellectual
property rights.
Since 2012 the internet has gone through a
significant transformation with the addition of close to
600 new possible types of domain names. This gives
new opportunities to organisations in the voluntary
and not-for-profit sectors.
What exactly does this mean?
We are all familiar with the suffixes such as .com .co.
uk .org .org.uk .net .edu and .gov appearing in website
and email addresses. Known as top level domains (or
TLDs) these are used in the hierarchical organisation
of the Domain Name System of the internet.
Top-level domains are currently divided into several
groups. These include:
n generic
top-level domains (or gTLDs): domains
such as .com .net and .org that have three or more
characters
n country
code top-level domains: two-letter domains
for countries or territories, such as .uk and .eu
n internationalised
top-level domains: domains in
non-Latin character sets or alphabets, such as
.онлайн (.online in Cyrillic)
While the introduction of the non-Latin character
domains is certainly of significant interest (watch this
space!), this focus of this article is on gTLDs.
Some gTLDs are open to all: in other cases specific
conditions must be met before a particular gTLD can
be used. For instance, use of .com, which is the most
commonly used gTLD, was originally restricted since
it was intended for for-profit business entities. But it
is now open, which means that any person or entity
may register a domain name with this gTLD. .net and
.org are also open, while .edu .gov .mil and .int are
restricted to users who fulfil certain criteria.
Overall responsibility for the Domain Name System
rests with the Internet Corporation for Assigned
Names and Numbers (ICANN), which operates the
10 Charity and Social Enterprise Update | Autumn 2015
Internet Assigned Numbers Authority (IANA). In
practice, the management of most top-level domains
is delegated to specific organisations. In 2012 ICANN
began a programme of opening up the internet,
allowing applications for a whole set of new gTLDs.
Over 1,000 applications were submitted and as of
now more than 600 new gTLDs have been approved.
As explained below, these include .ngo .fund and
.foundation.
New opportunities
With more gTLDs coming daily, charities and social
enterprises are being presented with a number of
new options:
n There
are only a finite number of domain names
with the existing gTLDs, and it is possible that
your preferred name has already been taken: the
creation of new gTLDs opens up a whole new set
of choices.
n If
a charity already has an established website
using .com or .org, it is worth considering whether
a new domain name will be of help. It is not
necessary to have a separate entire website for the
new name – a webpage placeholder could be used,
forwarding the user to the existing website under
the .com or .org domain.
n Alternatively
a new gTLD could be used as a
microsite for a particular project or campaign.
n It
could even be worth registering a domain under
a new gTLD simply in order to prevent others from
doing the same. However, it is worth noting that
there are procedures which apply where a third
party registers a domain name containing a trade
mark owned by a charity, which can allow the
charity to take over the domain name instead.
It is open to private organisations or agencies to apply
to manage and enforce a new gTLD. For example,
Apple has applied for .apple, while Amazon has
applied for .book and Booking.com has applied for
.hotels. However, the application cost is very high
and applicants need to demonstrate the operational,
technical and financial capability to run a registry. So
it does not generally make sense for charities to apply
for their own gTLD. However, buying and using a
Features
domain name with one of the new gTLD extensions
is an entirely different matter.
.ngo and other suitable alternatives
.org and .org.uk have long been favourite gTLDs for
charities, but there is now a new suitable alternative:
.ngo, intended for non-governmental organisations.
Introduced in April 2015, it is managed by the Public
Interest Registry, which also manages .org. Domain
names under this gTLD are sold as a package with
.ong and are restricted to validated NGOs, i.e. NGOs
that meet the specific eligibility requirements set
down by the Public Interest Registry, such as being
focused on acting in the public interest, having a nonprofit focus, and being non-political.
While anyone can register a .org or a .com domain
name, the underlying eligibility requirements mean
that a .ngo domain name will lend credibility to an
organisation using this gTLD.
The application for the gTLD .charity is still pending,
but .fund and .foundation are available and open to
anyone, while .green is available to anyone supporting
green environmental initiatives.
Trade mark registration
Note that if a domain name is to be based on a
registered trade mark, it can be worth first recording
this trade mark registration with the Trademarks
Clearing House. A particular advantage of doing so
is that it gives the trade mark owner the right to
register a new domain name with a new gTLD during
a sunrise period, i.e. when it is first introduced and
before general availability.
How can BWB help?
BWB’s Intellectual Property law team has
extensive experience in registering domain names,
in particular for charities and social enterprises,
and has recently registered new domain names
with the .ngo and .ong extensions. We can advise
on the availability and suitability of new domain
names and guide you through the registration
procedure.
BWB is in the unique position of both having its
own team of qualified trade mark attorneys inhouse and specialising in the voluntary sector. As
domain names are often based on organisations’
trade marks, we are ideally placed to advise
on the registration of trade marks and recordal
of these with the Trademark Clearinghouse for
subsequent domain name registrations.
For more information or for a free initial
consultation, please contact Catharina Waller
[email protected].
Charity and Social Enterprise Update | Autumn 2015 11
Features
Challenging procurement decisions
A decision to appoint a new service provider following a procurement process
can be devastating for the incumbent provider.
Selman Ansari and Claire Whittle
comment on a recent case which may
help those considering a challenge
Selman Ansari
Partner
T: 020 7551 7784
[email protected]
Selman is an experienced
public and regulatory law
specialist who advises
on all aspects of law
affecting the public sector.
Selman is an experienced
advocate and regularly
appears in a variety of
tribunals. He also advises
on non-contentious
commercial documents
and matters with a
regulatory aspect.
Claire Whittle
Associate
T: 020 7551 7605
[email protected]
Claire has experience in
a wide range of public
and regulatory work,
including acting for
and advising in relation
to potential and
actual judicial review
proceedings and acting
and advising on a range
of contentious and noncontentious public law
and regulatory matters.
The case of Bristol Missing Link Limited v Bristol
City Council [2015] involved a legal challenge by the
housing and support association Bristol Missing Link
to the award of a significant contract for domestic
violence and abuse support services in Bristol
following a procurement process. The association
was the incumbent provider for the services.
Under the procurement rules, such a challenge
triggers an automatic suspension of the award of the
contract. This meant that, in this case, Bristol City
Council was prevented from entering into the new
contract with the winning bidder, Refuge. Bristol
City Council applied to the court for the suspension
to be lifted.
Bristol Missing Link argued that the suspension
should remain in place pending a substantive decision
on the merits of its challenge. If the suspension had
been lifted, but the challenge to the procurement
process had ultimately succeeded, it would increase
the risk that the contract would not have been
re-awarded to the association, but it would have
been compensated in damages.
The court, in considering the Council’s application,
had to consider:
n
catastrophic consequences for the organisation, both
financially and reputationally, and held that it would
not be possible to compensate for the reputational
harm in damages.
The third decisive factor was the judge’s finding
that any prejudice to the Council or the service users
caused by the suspension was either non-existent or
at most negligible. These findings are in contrast to
the court’s conclusions in the case of Solent NHS
Trust v Hampshire County Council [2015]: there the
court held that the balance of convenience favoured
the immediate lifting of the suspension, in particular
so that fully integrated and improved services could
be provided sooner to a significant number of drug
and alcohol addicts.
The Bristol decision is good news for not-for-profit
organisations wishing to challenge a procurement
decision in a situation where they are the incumbent
provider. The cost of bringing a procurement
challenge – including the need to give an undertaking
in damages – can often mean that obtaining legal
redress is prohibitively expensive for not-for-profit
organisations. This case indicates that the courts
will be willing to uphold the suspension of the
new contract where the claimant has a legitimate
challenge and can demonstrate the inadequacy of
damages, the harm of the suspension being lifted
and the lack of any real prejudice to the defendant
and/or service users.
whether there was a serious issue to be tried; and
n whether
the balance of convenience pointed in
favour of maintaining or lifting the suspension.
In this case, the court found that there was a serious
issue to be tried: this was helpful to the housing
association as it showed that their challenge had
merit. It also found that the balance of convenience
favoured maintaining the suspension. In coming to
this conclusion, the court decided that damages
would not be an adequate remedy for the claimant
association. The claimant was a non-profit making
organisation that had bid for the new contract making
no allowance for profit at all and a minimal amount
for overheads. The court accepted the claimant’s
evidence that the lifting of the suspension would have
12 Charity and Social Enterprise Update | Autumn 2015
Procurement rules
As we reported in our recent summer update –
www.bwbllp.com/knowledge/updates/2015/05/
15/charity-and-social-enterprise-update-summer/
– new procurement rules – the Public Contract
Regulations 2015 – came into force in February
2015.
The challenge in the Bristol Missing Link case was
brought under the pre-2015 rules, but the rules
that apply to the suspension of contracts have not
changed under the 2015 Regulations.
Features
The duty to prevent people being drawn
into terrorism
The Counter-Terrorism and Security Act 2015 has imposed a new legal
obligation on a wide range of organisations to tackle radicalisation, including
for some charities, not-for-profits and private companies.
Ayden Peach outlines the new
‘Prevent’ duty and what it means
for those required to meet it
Ayden Peach
Paralegal
[email protected]
Ayden is a paralegal in
the Charity and Social
Enterprise Department,
and works with the
Electoral and Political
Activities team. Ayden
joined BWB after a
career in journalism,
broadcasting and human
rights advocacy.
The ‘Prevent’ duty is to: ‘have due regard to the need
to prevent people from being drawn into terrorism’.
The list of authorities that must perform the duty
includes local authorities, NHS trusts and schools,
and private and voluntary providers of certain spin-out
services. It also includes further and higher education
institutions. While not explicitly listed in the CounterTerrorism and Security Act, organisations with close
relationships to specified authorities may also be
affected, including charitable students’ unions.
The duty came into force on 1 July 2015 for most
specified authorities, alongside statutory guidance on
performance of the duty. It is anticipated that the duty
will come into force in further and higher education
settings later in the year.
While the government says it believes the Prevent
duty will not result in a significant burden for
affected organisations, statutory guidance published
by the Home Office sets out extensive requirements
that are likely to result in the need to introduce or
change policies, procedures and practices and add
to governance demands.
The guidance makes clear that having ‘due regard’
means that specified authorities should ‘place an
appropriate amount of weight’ on discharging the
duty. While sector-specific guidance will need to be
considered in particular contexts, meeting the duty will
generally include being able to provide evidence of:
In addition, there may be complex issues
concerning the sharing of information. While the
government states that the duty must not involve
covert surveillance, it acknowledges that personal
information may need to be shared so those at risk
of radicalisation are given appropriate support. To
ensure observance of existing laws on the protection
of personal data, local information-sharing agreements
may be needed. Where specific concerns are raised
about an individual being at risk of radicalisation and
he or she has consented, support will be given to
them through a multi-agency programme ‘Channel’.
The Home Office is responsible for monitoring
compliance with the duty. If an authority is judged to
have failed to meet the duty, the Secretary of State
can use powers in the Act to make directions to
enforce performance.
While there is a wide consensus for the need to
address radicalisation, critics of Prevent have warned
of the bureaucratic burden it may impose on affected
bodies. Concerns have been expressed that guidance
is vague and overly broad and that implementation
of Prevent may cause divisions between and within
communities that could lead to the abuse of rights.
Accordingly, it will be vital to ensure adequate time
and governance resources are devoted to considering
how to meet the duty and that it is balanced
proportionately with other legal duties.
Prevent also appears to indicate a direction of travel for
future legislation. A Counter-Extremism Bill expected
this autumn will consider banning brders for extremist
groups, extremism disruption orders for individuals and
closure orders for premises connected with extremism.
Risk assessment
Identifying and understanding the particular risk of radicalisation for an organisation
in the context of carrying out its functions.
Working in
partnership
Productive co-operation with relevant partners, including local Prevent Coordinators,
the police and existing networks, such as Local Safeguarding Children Boards.
Staff training
Staff engaging with the public should understand radicalisation, why people may
be vulnerable to being drawn into terrorism and how to obtain support for those
who are vulnerable.
IT policies
Ensuring appropriate levels of filtering to screen out harmful content and frameworks
for identifying and addressing issues where extremist content is accessed.
Charity and Social Enterprise Update | Autumn 2015 13
Features
Introducing B Corps
B Corps are part of a global movement to redefine success in business
by introducing new standards of social and environmental performance.
Luke Fletcher
Partner and Head of
Social Finance
T: 020 7551 7750
[email protected]
Luke advises charities,
social enterprises and
other businesses on a
wide range of corporate
and financial transactions
and commercial and
regulatory issues. As
Head of Social Finance,
he leads the firm’s work
in the developing areas
of social finance and
investment.
Louise Harman
(née Saunderson)
Senior Associate
T: 020 7551 7679
[email protected]
Louise has experience
of advising charities,
not-for-profit organisations
and social enterprises on
a broad range of legal
and commercial issues,
ranging from corporate
structures, establishment
and governance to
regulatory matters, with a
focus on social investment
and social finance.
Luke Fletcher and Louise Harman
(née Saunderson) explain what they
are and why it matters
officially launching on 24 September with an event in
London. We expect there to be a lot of noise, energy
and excitement around B Corps in the UK.
What is a B Corp?
B Corps and the charity and social enterprise
sector
The B Corp movement, which originated in the US,
promotes an alternative vision for the role of business
in society – one where businesses benefit members
while also solving social and environmental problems.
A B Corp is a for-profit business that meets a series
of requirements designed to ensure that it has social
and/or environmental outcomes as part of its mission.
The following is an easy strapline to remember: ‘B
Corp is to business what Fair Trade certification is
to coffee’.
In order to certify as a B Corp, a business must meet
the following three requirements:
1. The Performance Test – The business must meet
a rigorous set of standards that measure the
overall impact of a business on its stakeholders.
The standards are developed by an independent
committee with industry and sector expertise and
include the following broad sections: governance,
workers, communities, environment and impact
business models.
2. The legal test – It is a requirement for all B
Corps to amend their constitutional documents to
enshrine a commitment to the ‘triple bottom line’
approach to business. In practice, for a typical
business, this principally means including an
objects clause that states that it exists to promote
the success of the business for the benefit of its
members, but also to have a material positive
impact on society and the environment, along
with other related requirements.
3. The B Corp Declaration of Interdependence –
All B Corps need to sign the B Corp Declaration
of Interdependence, which sets out a commitment
to all stakeholders.
There is currently a B Corp community of more than
1,300 companies from across 41 countries working
together to redefine what successful business means.
B Corps are at an early stage in the UK and will be
14 Charity and Social Enterprise Update | Autumn 2015
A B Corp must be businesses that fall within the
following parameters:
n B
Corp must compete in the marketplace with
respect to its core business activities;
n A
B Corp must receive the majority of its income
from its business activities;
n A
B Corp must not be majority owned by the
state but may compete for contracts in the public
service marketplace;
n Charities
cannot be B Corps: a B Corp must
not be registered as a ‘charity’ with the Charity
Commission/OSCR or the Charity Commission
for Northern Ireland. However, charity trading
subsidiaries – non-charitable companies that
are wholly owned by charities – are eligible.
“We expect there to be a lot of noise,
energy and excitement around B
Corps in the UK”
As is the case in the US, commercial businesses in
the UK will be particularly interested in exploring
the advantages of B Corp status as a way of
demonstrating an intent to have a positive impact
on society and the environment. We expect that
some social enterprises – including community
interest companies and charity trading subsidiaries
– may wish to use the status to demonstrate their
commitment to social and environmental impact,
although it is anticipated that the majority of B
Corps will be mainstream businesses.
While charities themselves cannot register as B
Corps, when selecting suppliers, business partners,
or companies to invest in, they can be confident that
companies certified as B Corps share similar social
and environmental values.
Features
BWB certifies as a B Corp
Bates Wells Braithwaite is proud to be the
first UK law firm to have joined the B Corp
movement, reaffirming our position as the
leading law firm for charities and socially
responsible businesses.
Having played a significant role in establishing
the B Corp movement in the UK, we are pleased
to have achieved certification and to be a pioneer
in this exciting movement.
Martin Bunch, managing partner at BWB
commented: ‘Becoming a B Corp is an important
moment for BWB – the firm has always combined
commercial work with a purposeful mission of
maintaining justice for the public good. As a firm
we believe that business, the public sector, social
enterprise and charities can all deliver social
value. Our responsibility is to support them by
providing the highest quality legal services and
advice to enable them to thrive.’
Find out more
For more information on B Corps, visit the website
at http://bcorporation.uk/b-corps-in-the-uk
Luke Fletcher is on the board of B Lab (UK)
and chair of its Policy Council, which advises
on the legal test for B Corps and other legislative
and regulatory issues. Louise Haman (née
Saunderson) is company secretary of B Lab
(UK) and secretary of the Policy Council.
B Lab (UK) is the entity tasked with promoting
B Corps in the UK.
BWB is advising B Lab (UK) on registering as
a charity with the Charity Commission. To learn
more about B Lab, please visit
http://bcorporation.uk/meet-b-lab-uk
Charity and Social Enterprise Update | Autumn 2015 15
Client focus
Divest Invest
Sarah Butler-Sloss
Sarah Butler-Sloss
is an internationallyrecognised leader in the
field of green energy and
sustainable development.
She and her husband
established the Ashden
Trust in 1989, which is
one of the 18 charitable
trusts and foundations
established by members
of the Sainsbury family.
In 2001, she launched
the Ashden Awards,
which recognise and
support those working
on sustainable energy
initiatives.
Sarah Butler-Sloss, chair of BWB
client the Ashden Trust, explains
how the Sainsbury Family Charitable
Trusts have embraced the fossil
fuel divestment movement that is
sweeping the USA and Europe
The fossil fuel divestment movement is one of the
fastest growing movements of our time. It originated
on US college campuses as a result of disillusionment
with the failed climate summit in Copenhagen in
2009 and the collapse of climate legislation in the
US Senate the following year. As we stand on the eve
of the COP21 summit in Paris, it is extraordinary to
consider how far we have come since those dark days.
Today, more than 100 philanthropic trusts and
foundations worldwide, with total assets under
management in excess of US $5bn, have signed the
Divest Invest Philanthropy pledge, meaning they
have embarked on a process to divest from fossil
fuels over the next five years and that they will invest
at least 5% of their assets in climate solutions.
Over the past 18 months – following the lead of the
Wallace Global Fund and the Rockefeller Brothers
Fund, among others, in the US – Ashden Trust and
Mark Leonard Trust, two of the Sainsbury Family
Charitable Trusts, have been working alongside
a number of other European charitable trusts,
foundations and family offices to build support
for Europeans for Divest Invest.
The burning of fossil fuels is not the only cause of
climate change but it is the main one. If we are to
have any hope of meeting the globally agreed target to
limit average temperature rise to two degrees, we must
keep about two-thirds of known fossil fuel reserves
in the ground.1 If we don’t, we risk runaway climate
change. If we do keep them in the ground, then the
companies that hold them become ‘stranded assets’
and are potentially massively over-valued. Either way,
continued investment is a major financial risk.
1.International Energy
Agency, World Energy
Outlook 2012.
In a report published in June this year, City financial
consultancy, Mercer, pointed out that over the next
10 years, average annual returns from coal could be
eroded between 26% and 138%, while renewables
16 Charity and Social Enterprise Update | Autumn 2015
could see average annual returns increase by
between 4% and 97%. Moreover, it indicates that
staying within two degrees of climate change will
not jeopardise financial returns.
For trusts such as ours seeking to address climate
change and alleviate poverty there is another major
risk – to our beneficiaries and our reputation. Knowing,
as we do, that burning fossil fuels drives climate
change – which will disproportionately burden the
poor and vulnerable – how can we invest in companies
contributing to the problem? As Ellen Dorsey, executive
director of the Wallace Global Fund, puts it: ‘If your
investments are driving the problem that you’re asking
your grantees to solve, that’s a problem.’ And, as
BWB’s Luke Fletcher explained at a Divest Invest event,
in the not too distant future charities are likely to come
under increasing pressure to invest in ways which are
more consistent with their purposes and professed
aims. Surely it is better that we take this action
voluntarily rather than in response to external pressure?
We would be delighted for other charitable trusts,
foundations and family offices to join Europeans
for Divest Invest. We shall be making a major
announcement of new signatories in the lead up to
COP21 in Paris. To that end, we would like to extend
an invitation to trustees and investment officers to
attend one of our ‘find out more’ events over the
coming months.
Finally, I would like to acknowledge the outstanding
work of BWB, with which both the Ashden Trust
and the Mark Leonard Trust have longstanding
relationships. The firm not only provides consistently
high quality legal advice in what can be an uncertain
area, but is also clearly committed to encouraging
socially responsible investment across the sector.
Find out more
Please email [email protected] for
further information on Europeans for Divest Invest
and the programme of events, or visit the website
http://divestinvest.org/europe/
For more information on the Ashden Trust please
visit the website www.ashdentrust.org.uk/
Features
Gifts of shares
Legacies of shares in private companies are an increasingly popular type of
bequest to charities, so it is important to understand the options available to
maximise the value of such bequests to your charity.
Leticia Jennings advises charities in
receipt of these gifts on how best to
deal with them
Leticia Jennings
Senior Associate
T: 020 7551 7657 /
07791 883095
[email protected]
Leticia specialises in
resolving commercial
and chancery disputes,
with a focus on charity
legacies and trusts
disputes.
Legacy fundraisers will know that testators are
becoming more sophisticated in the types of
charitable gifts they leave in their wills, moving away
from simple cash gifts to art, property interests and
shares in private limited companies. This last category
of gift can be an attractive option for testators
considering benefiting a charity in their will, as the
alternative option of selling the shares during their
lifetime to fund a cash gift to charity is likely to give
rise to a capital gains tax charge.
There are a number of issues for a charity that is left
a shareholding in a private company to consider. Top
of the list will be whether the charity wishes to retain
the shares on an ongoing basis, or sell them at an
early stage to realise their value.
Two real-life cases that we have dealt with recently for
charity clients illustrate the different approaches
a charity might take.
family-run company to a charity client. With the
support of his uncle, the deceased’s son wished to
take over the running of the family business, and
wanted to ensure that the company’s long-standing
employees were retained. By contrast, our client was
keen to realise the value of the gift so that it could
readily fund its charitable activities. We negotiated
an arrangement with the deceased’s son so that he
was able to take ownership of the shares and our
client received cash in lieu. This was achieved by
way of a deed of variation of the deceased’s will,
which redistributed the assets in the estate between
the charity and the son, and a buy-back agreement,
which generated enough funds to allow the charity
to be paid in cash. We also negotiated an overage
agreement entitling the charity to an additional
payment if the son sold the shares at an increased
value in the coming 12 months.
“If your charity is left a gift of private
company shares it is vital to get as
much information as possible as soon
as possible so that you can consider
the options and make the best decision”
Retaining the shares
Points to consider
This case involved a gift of shares in a property
lettings company to our charity client. The
deceased left his 100% shareholding to the charity
in recognition of his commitment to the religion
supported by the charity. Perhaps somewhat
unusually, the charity was keen to retain the
shareholding and take an active role in running the
company, including employing a manager to deal with
tenants and property repairs and maintenance. The
charity appointed its own directors, and instructed
us to prepare new governance documents to update
the company’s constitution. In this way the charity is
now benefiting from a steady income stream from the
company’s assets, as well as holding a substantial
capital asset which it could dispose of in the future
should it wish to, thus benefitting from any increase
in the company’s value.
If your charity is left a gift of shares in a private
company, the issues you should consider include:
Selling the shares
The next case involved a gift of shares in a Scottish
n would
the charity, in principle, be interested in
retaining the shareholding or would it prefer to
sell the shares?;
n what
rights attach to the shares? There are often
different classes of shares in private companies:
for instance, do these shares confer rights to vote
at company meetings and/or rights to receive
dividends?;
n check
the company’s articles of association for
any restrictions on who can hold the shares in
question. The articles may require the shares to
be transferred to a family member or to one of the
other shareholders, and even if the shares can be
transferred to the charity, the articles may restrict
the charity’s ability to dispose of them in the future;
n what
is the size of the shareholding? If the charity
is left a majority shareholding, it might be obliged
Charity and Social Enterprise Update | Autumn 2015 17
Features
to take an active role in the running of the company
going forward;
the charity does not inherit a 100% shareholding,
who are the other shareholders?;
The Charity Legacies, Trusts & Probate
Disputes team
n if
n how
are the shares valued? If the charity intends
to keep them they will become an asset of the
charity and will need to be properly accounted for
in the charity’s accounts. If they are to be sold, take
appropriate advice to ensure that they are not sold
too cheaply as otherwise the charity’s trustees may
be in breach of their duties under charity law for
selling a charity asset at an undervalue; and
n make
sure you take advantage of the tax benefits to
charities – if shares are sold by the charity (or an
executor on the charity’s behalf), the charity should
be exempt from tax on any increase in the value of
the shares during the charity’s ownership.
If your charity is left a gift of private company shares
it is vital to get as much information as possible as
soon as possible so that you can consider the options
and make the best decision. In light of the potential
complications it is important for charities to take
appropriate legal and tax advice.
18 Charity and Social Enterprise Update | Autumn 2015
BWB’s well-regarded Charity Legacies, Trusts &
Probate Disputes team advises charities on all
legacy and trust related issues, including any
disputes that may arise. From advising on legacy
fundraising and day-to-day probate queries, to
helping you deal with difficult legacies (including
those involving trusts, restricted gifts, gifts of
property and shares), challenges to the validity of
wills, problems with executors and their fees, and
claims under the Inheritance (Provision for Family
and Dependants) Act 1975, our team is able to
provide a full legacy-related advice service.
http://www.bwbllp.com/services/legacies-andprobate-disputes/
Features
VAT and direct marketing costs
HMRC has imposed new VAT charges on direct mailing to supporters.
Bill Lewis explains how this will
affect charities, and how they can
mitigate the impact of the change
Bill Lewis
Consultant
T: 020 7551 7689
[email protected]
Bill advises on all aspects
of taxation affecting
charities, including VAT,
PAYE, corporation tax
and Gift Aid.
The updated VAT
Notice 700/24 can
be found at www.
gov.uk/government/
publications/
vat-notice-70024postage-anddelivery-charges and
the supplementary
briefing can be
found at www.gov.
uk/government/
publications/
revenue-andcustoms-brief-102015-vat-directmarketing-servicesusing-printed-matter/
revenue-andcustoms-brief-102015-vat-directmarketing-servicesusing-printed-matter
For some time charities have benefited from the
VAT zero rate on printed matter when producing
various paper based mailing packs and mailing
them out to supporters. Provided:
n the
contents of the pack qualified for the VAT
zero rate; and
n the
contract was for the single supply of printing
and mailing (or even designing, printing, and
mailing) the pack, then the predominant supply
for VAT purposes was seen as the printed material.
The work could, therefore, be carried out at the
VAT zero rate.
Unfortunately, HMRC has decided that this analysis
of the arrangements is incorrect. HMRC’s view is
now that when there is a contract for the printing and
mailing out to supporters of paper-based packs, the
predominant supply is one of a marketing service.
This does not benefit from the zero rate. This means
that the sector is now faced with dramatically
increased VAT charges, which are usually either
irrecoverable or, at best, partially recoverable.
The history behind this new approach is not a happy
one. HMRC initially set out its new interpretation of the
position in correspondence with the Direct Marketing
Association (DMA). There was no official release on
HMRC’s website nor in its publications. Instead the
DMA released to its members copies of letters that it
had received from HMRC, and these went viral. They
were picked up by printing and marketing and direct
mail companies that were not part of the DMA, and
from there spread on to charities, their advisers, and
various sector representative bodies.
I think it is fair to say that all were aghast at the
change, and equally aghast that HMRC had not seen
fit to publish the details through official channels. As a
result there was much debate and lobbying with HMRC
over the exact nature of the change, and its imposition
was delayed, initially until 1 April 2015 but then, in
the light of pre-election purdah, until 31 July 2015.
Details of the current position can now be found
in the updated VAT Notice 700/24, and in a
supplementary briefing document issued by HMRC to
deal with some holes in the notice itself (links to both
documents can be found at the side of this article). I
would strongly urge any organisation that makes use
of direct mailing services to read both the notice and
the briefing in full and discuss their ramifications with
their usual print and mailing suppliers. They are each
no more than five pages long.
It is to the credit of sector organisations and lobbying
groups such as the Charity Tax Group that HMRC did
finally publish details of the new regime in this way.
As regards the substance of the change, most advisers
do not accept the HMRC viewpoint that direct
mailing arrangements are really supplies of marketing
services, rather than the printing and delivery of
zero-rated printed materials. Advisers generally take
the view that the VAT treatment depends on the
contractual arrangements and that the broadbrush
approach now preferred by HMRC is not appropriate.
HMRC has in fact acknowledged this: section 3.3
of VAT Notice 700/24 reads:
When any of the services listed (or other marketing
related services) are supplied with printed matter as
a single supply, then that is taxable at the standard
rate, as it is a supply of direct marketing services.
Where the printed matter and any services are
supplied separately then that may comprise
multiple supplies and each component is taxed
according to its VAT liability. [my emphasis]
This means that there is some wriggle room. If the
contractual arrangements allow for the separate
supply of printed materials (which can be at the
VAT zero rate), with a separate supply of the mailing
service (subject to VAT), there is still scope to take
advantage of the zero rate on at least part of the
costs. This is well worth exploring with your printing
and mailing suppliers.
Find out more
Bill Lewis provides specialist advice to charities
and social enterprises on all aspects of tax,
including VAT and Gift Aid. Please contact Bill or
your usual adviser for more information.
Charity and Social Enterprise Update | Autumn 2015 19
Features
The not-so united kingdom
The whole debate on the future status of Scotland and, as a result, of the whole
of the United Kingdom is still very live.
John Hodge and Alan Gilfillan
of Balfour+Manson solicitors in
Edinburgh explore what this might
mean for the sector
John Hodge
Commercial Law Partner
0131 200 1260
[email protected]
John has been with
Balfour+Manson since
1975, dealing throughout
with commercial property.
He has dealt with a large
number of charities, partly
through personal interest
and support. In recent
years he has widened his
area of advice to charities
to cover all aspects of
charity governance.
Alan Gilfillan
Commercial Law Associate
T: 0131 200 1240
[email protected]
Alan advises a range
of commercial and
charitable organisations,
He was seconded to the
Office of the Scottish
Charity Regulator in
2012, where he worked
as an in-house legal
adviser.
When the referendum campaign on Scottish
independence first started, many years ago, all
parties were agreed that this was a once in a lifetime
opportunity to decide the future of Scotland. Inevitably
things have changed and the referendum may have
been just the beginning.
The Smith Commission and further devolution
As is well known, the Smith Commission was formed
in the aftermath of the Referendum to consider
the further devolution of powers to the Scottish
Parliament. The Commission met and very speedily
produced its report. Currently the Scotland Bill, which
is intended to implement its recommendations, is
going through the Westminster Parliament and there
is considerable debate on various issues.
For instance, while control of the welfare budget was
to be devolved there is much debate as to whether
or not the Holyrood Parliament will have full control
over all aspects of welfare and would be able to
design a new system. At the moment it is proposed
that matters concerning benefits, carers, discretionary
housing payments are to be devolved. Depending how
the legislation is implemented, this could be one of
the areas where it will be necessary to have regard
to the different regime that may or may not apply in
Scotland following devolution.
Likewise, power of support for unemployed
people is to be devolved. This means that the
Scottish Parliament will have power to decide how
employment support services are delivered.
There are various other areas where changes have
been suggested. For instance, consideration is to be
given to changes in the rules for those working with
asylum seekers. There may be a different regime
for asylum seekers to access accommodation and
financial support. MSPs may also have a role in taking
matters up on behalf of their constituents with UK
Visas and Immigration.
20 Charity and Social Enterprise Update | Autumn 2015
Mineral access rights for underground extraction of oil
and gas is to be devolved and also much of the Crown
Estate property will pass to the Scottish Parliament.
All of this is of key significance to charities and social
enterprises working in these areas. Campaigners
should note where decision making will be in
Edinburgh rather than London. Charities should
be aware of areas where the rules that affect their
beneficiaries, and their operations, may be different
north and south of the border.
Further changes will occur as the legislation goes
through the Parliament and this article simply reflects
the situation at the time of writing: given the political
background amendments are inevitable.
“The old Chinese curse ‘May you live
in interesting times’ certainly appears
to apply here”
Taxation
One key matter that is likely to have a major impact
on all charities is the devolution of tax powers to the
Scottish Parliament.
Landfill tax and Land and Buildings Transaction Tax
have already been devolved. As charities are generally
exempt from Land and Buildings Transaction Tax – as
they are from Stamp Duty Land Tax – this has not had
any major effect.
However, the devolution of the rate of income tax
and the statement by the Finance Secretary of the
Scottish Government that he is considering changing
the Scottish rate of income tax raise major issues for
charities that have still to be resolved.
Until now the Gift Aid system has worked in a unified
way across the whole of the United Kingdom. Various
problems could arise with a differential rate of income
tax in different parts of the United Kingdom. If the
existing link to income tax rates was maintained,
then the amount that the charity could reclaim under
Gift Aid would vary depending on the location of
the donor. It might be a greater or lesser amount
depending upon which part of the United Kingdom
Features
they were from. Also, with two separate tax rates,
the Gift Aid reclaim would obviously give rise to more
administration and would be difficult to operate.
One way of dealing with this would be for the amount
that could be reclaimed to be linked to the rate in the
rest of the UK, rather than the specific Scottish rate.
Another possibility might be that Gift Aid could be
abolished and the donors would simply get relief at
their income tax rate. It would then be hoped that the
donors would be more generous towards the charity.
However, such a move is unlikely to be popular.
Scottish Parliament, cross-border charities would
need to be recognised by four entities: the Charity
Commission, OSCR, HMRC and Revenue Scotland.
In the circumstances, it might be possible to establish
a one-stop charity recognition by OSCR, which would
be accepted by Revenue Scotland. This would be in
line with moves to tie registration with the Charity
Commission and HMRC into a single process.
The old Chinese curse ‘May you live in interesting
times’ certainly appears to apply here. At the time of
writing, very little is certain, but clearly charities will
need to keep a close eye on developments.
At the moment, the situation is subject to ongoing
discussion and negotiation. In the circumstances,
these comments are largely speculation.
Another relevant issue will be the role of Revenue
Scotland. Revenue Scotland has responsibility for
devolved taxes. At the moment, the recognition of
charity for tax purposes is decided by HM Revenue and
Customs, which applies the English charity definition.
If the recognition of charities was devolved to the
Charity and Social Enterprise Update | Autumn 2015 21
Roundup
What’s new at the Charity Commission
In this roundup, Hannah Morphet summarises the latest developments
at the Charity Commission.
Strategic Plan 2015-2018
Hannah Morphet
Solicitor
T: +020 7551 7636
[email protected]
Hannah advises charities,
not-for-profit organisations
and businesses with a
social purpose on a range
of legal and commercial
matters.
The Charity Commission has published a strategic
plan setting out its priorities for the next three years.
The plan identifies four strategic aims:
n protecting
n enabling
charities from abuse or mismanagement;
trustees to run their charities effectively;
n encouraging
greater transparency and accountability
in charities; and
n operating
as an efficient, expert regulator with
sustainable funding.
The commission will be consulting on proposals
for alternative funding options, including an annual
charge for registered charities.
Annual Report
Find out more
www.gov.uk/
government/
organisations/
charity-commission
The commission has also published its Annual Report
for 2014-2015.
The report shows a slight increase in applications for
charity registration, and a significant increase in the
registration of charitable incorporated organisations
(CIOs) – almost twice as many were registered in
2014-2015 as in the previous year.
The report also confirms that the commission has
shifted resources into monitoring and investigations,
and is opening significantly more statutory inquiries:
103 new inquiries were opened in 2014-2015, up
from 64 in the previous year. It also used its legal
powers 1,060 times in its compliance case work, up
from 790 times in 2013-2014 and 216 times in the
year before that.
Support for new powers for the Charity
Commission
Trust and Confidence in the Charity Commission
2015, a study conducted by Populus on behalf of
the Charity Commission, was published in June. The
study shows that:
n 76%
of the public and 61% of charities ‘believe
that the Charity Commission should do more to
regulate and control charities to ensure they are
working for the public benefit’; and
22 Charity and Social Enterprise Update | Autumn 2015
n 83%
of the public and 92% of charities ‘support
new powers being introduced for the Charity
Commission’.
The Veterans Charity – opening of a statutory inquiry
The commission has opened a statutory inquiry into
this charity, examining the charity’s financial controls,
fundraising practices and the extent to which its funds
are applied for charitable purposes. The commission
has also exercised its statutory powers under the
Charities Act 2011 to effectively freeze the charity’s
bank account: the bank may not part with any
funds that it holds on behalf of the charity without
the approval of the commission. Payments into the
account can be made as normal, and the charity has
not been prevented from fundraising.
The commission has stressed that the opening of
an inquiry is not in itself a finding of wrongdoing,
and in a statement on its website, the trustees offered
their assurance that The Veterans Charity is fully
co-operating with the commission in its investigation.
My Community UK – report of a statutory inquiry
The inquiry into this charity following a complaint from
a member of the public, found that in one particular
year the charity’s bank statements showed significantly
higher income than the income declared on its annual
return – a gap of more than £180,000. The current
trustees explained most of this income was for a joint
fundraising project with other charities, with the money
raised merely passing through the charity’s bank
account. There was evidence to show that some of this
‘project income’ was indeed used for the project, but
around £130,000 was unaccounted for. There were
also payments of £93,996 made to one of the former
trustees or companies associated with him.
The inquiry concluded that there had been misconduct
or mismanagement on the part of the three original
trustees. The project income should have been reported
in the charity’s annual report, and the charity should
not have been used to collect and process donations
for the other charities. The commission issued an order
under the Charities Act 2011 requiring the current
trustees, who have already taken steps to improve the
charity’s governance, to take professional advice on
recovering funds from the former trustee.
Roundup
Charity Tribunal update
Holly Terry reports on recent notable cases.
Holly Terry
Trainee Solicitor
T: 020 7551 7630
[email protected]
Holly is a second-year
trainee, working on a
range of Immigration law.
Charity registration
Time limits for appeal to the tribunal
Wilfrid Vernor-Miles and Others v the Charity
Commission
The First-tier Tribunal has overturned the
commission’s decision not to register the Independent
Press Regulation Trust (IPRT) and has directed
the commission to include the organisation on the
register.
The Steadfast Trust v Charity Commission
In a preliminary ruling, the First-tier Tribunal held
that the 42-day period during which an appeal must
be made to the tribunal started to run on the date
on which the commission sent an email to the
appellant charity informing it of the commission’s
decision. It did not matter that the decision did not
take effect until some weeks later, nor that the charity
did not actually receive the commission’s email for
some time as a result of a change of an email address
and delayed access to its emails.
The commission had rejected the IPRT’s application
for registration on the basis that its charitable
purposes were too vague and uncertain, given that
the independent press regulator that the IPRT is
established to support does not yet exist.
The commission argued that the governing document
of the IPRT contained a collateral purpose of
providing financial support to a Leveson-compliant
press regulator, which ‘imported some ambiguity
into the trust deed’ with respect to the IPRT’s stated
objects ‘to promote, for the benefit of the public, high
standards of ethical conduct and best practice in
journalism and editing and publication of news in
the print and other media’.
This meant that the application to the tribunal was
made out of time, but in the circumstances the
tribunal was prepared to exercise its discretion to
extend the time limit to allow the appeal to proceed.
Find out more
For details of the First-tier Tribunal’s decisions
see www.charity.tribunals.gov.uk/decisions.htm
and for the Upper Tribunal’s decisions see
www.tribunals.gov.uk/financeandtax/Decisions.
htm#cha
The tribunal disagreed, holding that the relevant
provision in the trust deed was a discretionary power
not forming part of the objects, which did not render
the objects unclear or ambiguous.
The tribunal also held that the stated objects of the
IPRT were analogous to trusts ‘tending to promote the
ethical and moral improvement of the community’.
However, the tribunal was not persuaded that the
IPRT’s purposes were analogous to those of trusts
that promote the maintenance of proper standards
in the medical profession, trusts for the promotion of
compliance with the law or advancement of human
rights or conflict resolution, or trusts for the promotion
of objects of general public utility.
The tribunal also held that the IPRT was established
for the public benefit. It found that ‘there was no
evidence to suggest that a non-ancillary private
benefit would accrue to those in the media industry
from the proposed activities of IPRT’.
Charity and Social Enterprise Update | Autumn 2015 23
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© Copyright Bates Wells & Braithwaite London LLP September 2015
The information in this update is necessarily of a general nature. Specific advice should be sought for specific situations.
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